Goldman Sachs Tech Stocks: Top 12 Stock Picks

Published on August 13, 2023 at 1:18 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss the top 12 tech stock picks of Goldman Sachs. If you want to skip our detailed discussion about the tech industry, head directly to Goldman Sachs Tech Stocks: Top 5 Stock Picks.

According to Gartner, the IT sector is expected to grow by 5.5% between 2022 and 2023. This means that the global tech industry is set to generate $4.6 trillion in spending this year, despite the rising cost of living. Deloitte observed that while other industries have started to adjust to pre-pandemic levels, the technology industry is still riding the pandemic highs. A survey conducted by the firm showed that the top three concerns for the tech industry over the next couple of years include macroeconomic factors, workforce-related problems, and geopolitical uncertainties. Per the CHIPS and Science Act of 2022, US companies that plan to manufacture their own chips could receive financial assistance by the government. This is a welcome change given the global constraint in the supply for chips in the world. However, how this would impact the existing supply-chain relationships in the industry remains to be seen. Deloitte also expects strategic decisions to be made, regarding acquisitions and divesting, to focus on core product lines.

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As per McKinsey, the introduction of AI has taken the tech industry by storm. As more technology companies now explore enhancing their services through generative AI, the sector is provided with countless opportunities for growth and development. As per McKinsey’s estimates, AI-based services are expected to contribute $4.4 trillion in economic value. In addition, the tech industry saw over $1 trillion in combined investments since 2022. While the industry is poised for growth, recruiting top talent remains a major constraint for firms. Over the last year, job postings in the technology sector have increased by 15%.

Some of the major areas for growth include Applied AI, Software Development, Trust Architecture, and Digital Identity, as per the McKinsey report. Artificial intelligence is the new buzz, with different kinds of applications for consumers, businesses, and industries around the world. As of last year, over $104 billion was recorded in equity investment in Applied AI, while job postings increased by 6% between 2021 and 2022. Similarly, over $2 billion was invested during 2022 in softwares to improve different processes. Meanwhile, the job postings increased by 29% for developers between 2021 and 2022. As the industry looks set for yet another wave of digital transformation, there is a heightened need for security and safety for data management. In line with that, roughly $47 billion was invested during 2022 for building safe architecture to protect cloud-based data from cyber breaches.

Also read: 10 Best Financial and Fintech ETFs To Buy

According to Forbes, there are a few major trends in the tech industry. Given the rising costs of living and other challenges of managing the workforce, one shared goal is to improve operational efficiency through machine learning and artificial intelligence within businesses. Next, the industry is moving towards developing tools that require no code. This is going to be beneficial for businesses and consumers to address their tech requirements, without a need for any experience in coding. Artificial intelligence is expected to improve further, as it gets incorporated into decision making, content generation, and editing. Consequently, AI can also be used for innovation in car-based applications, such as self-driving cars. Recently, the healthcare sector has capitalized on technological innovation as the industry undergoes digital transformation. As more cloud-based solutions are offered for different industries to better manage business processes, the tech industry is set to optimize operations across multiple sectors.

With this industry outlook in mind, let’s take a look at Goldman Sachs’ top stock picks in the tech sector, which include the likes of Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL).

Our Methodology

We used Goldman Sachs’ Q1 2023 portfolio and selected the 12 biggest positions in tech firms during the quarter for this list. We have mentioned Goldman Sachs’ stake value and the hedge fund sentiment towards each stock as of the first quarter of 2023. The list is ranked in the ascending order of the firm’s stake value in each holding.

Source:Pixabay

Goldman Sachs Tech Stocks: Top Stock Picks

12. Mastercard Incorporated (NYSE:MA)

Goldman Sachs’ Stake Value: $1,640,035,093

Number of Hedge Fund Holders: 138

Mastercard Incorporated (NYSE:MA) is a global leader in providing payment solutions worldwide. It provides secure and seamless authorisation and processing of payments internationally. On July 27, Mastercard Incorporated (NYSE:MA) announced a Q2 non-GAAP EPS of $2.89 and a revenue of $6.3 billion, which outperformed market expectations by $0.06 and $130 million, respectively. At the end of Q1 2023, Goldman Sachs held 4.5 million shares of Mastercard Incorporated (NYSE:MA) worth $1.64 billion.

According to Insider Monkey’s first quarter database, 138 hedge funds were bullish on Mastercard Incorporated (NYSE:MA), as opposed to 139 in the previous quarter. Charles Akre’s Akre Capital Management held the largest position in the company, with 5.8 million shares worth $2.13 billion.

Like Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL), Mastercard Incorporated (NYSE:MA) is one of the top tech stock picks of Goldman Sachs.

LVS Advisory made this comment about Mastercard Incorporated (NYSE:MA) in its second quarter 2023 investor letter:

“We have owned Mastercard Incorporated (NYSE:MA) on and off since inception. We re-initiated the position in summer 2022 during the broader market sell-off. The stock traded off to an attractive valuation and we believed the tailwinds from a reopening of international travel still had legs. This was a small portfolio position and the stock has appreciated in the year we have owned it. The stock’s valuation is once again rich and the tailwinds from international travel and consumer spending appear to be tapering. We sold the position because we believe other opportunities within our existing portfolio will generate superior returns.”

11. Zscaler, Inc. (NASDAQ:ZS)

Goldman Sachs’ Stake Value: $1,793,493,600

Number of Hedge Fund Holders: 38

Zscaler, Inc. (NASDAQ:ZS) is a cybersecurity company that specializes in providing secure access solutions to protect customers from cyberattacks, data breaches, and data loss. On July 25, BTIG analyst Gray Powell upgraded Zscaler, Inc. (NASDAQ:ZS) stock from Neutral to Buy, with a price target of $185. The analyst highlighted that recent on-site assessments of SSE have shown a consistent and lasting enhancement. At the conclusion of Q1 2023, Goldman Sachs held 17 million shares of Zscaler, Inc. (NASDAQ:ZS) valued at $1.79 billion.

According to Insider Monkey’s first quarter database, 38 hedge funds were bullish on Zscaler, Inc. (NASDAQ:ZS). This number was 42 during the previous quarter. John Overdeck and David Siegel’s Two Sigma Advisors held a prominent stake in the company, with over 1 million shares worth $122.6 million.

Artisan Global Discovery Fund had this to say about Zscaler, Inc. (NASDAQ:ZS) in its Q4 2022 investor letter:

“Zscaler, Inc. (NASDAQ:ZS) provides cloud-based Internet security solutions. In the quarter, it announced 54% revenue growth and expected growth of nearly 40% in 2023 (ahead of expectations). Despite solid fundamental momentum, shares have underperformed this year as investors have grown concerned about slowing demand for enterprise software as the broader global economy slows. We believe the dual trends of rising security vulnerability and increased enterprise digitization will lead to sustained demand, even in a recession. Cybersecurity remains a top concern for businesses and governments alike as cyberattacks can have devastating financial and reputational consequences. Meanwhile, managing the security needs of legacy on-premise applications, a growing number of cloud-based applications (Office 365, Salesforce, etc.) and a more remote workforce (versus pre-pandemic) make operating IT infrastructures increasingly complex. Give the attractive long-term outlook and depressed valuations, we added to the position.”

10. Cisco Systems, Inc. (NASDAQ:CSCO)

Goldman Sachs’ Stake Value: $1,881,570,408

Number of Hedge Fund Holders: 61

Cisco Systems, Inc. (NASDAQ:CSCO) provides networking and communications solutions to enhance connectivity and security worldwide. On May 17, Cisco Systems, Inc. (NASDAQ:CSCO) announced a quarterly dividend of $0.39 per share, which was paid on July 26. It also reported a non-GAAP EPS of $1.00 for the third quarter of fiscal 2023, and a revenue of $14.57 billion, exceeding market consensus by $0.03 and $210 million, respectively. Securities filings for Q1 2023 reveal that Goldman Sachs held approximately $36 million shares of Cisco Systems, Inc. (NASDAQ:CSCO) valued at $1.88 billion.

According to Insider Monkey’s first quarter database, 61 hedge funds were long Cisco Systems, Inc. (NASDAQ:CSCO). In comparison, 70 hedge funds held a similar position in the company during the last quarter. Cliff Asness’ AQR Capital Management had the largest stake in the company, with 9.5 million shares worth $493.3 million.

Artisan Value Fund had this to say about Cisco Systems, Inc. (NASDAQ:CSCO) in its Q4 2022 investor letter:

“We had one sale this quarter, exiting network equipment company Cisco Systems, Inc. (NASDAQ:CSCO). We chose to use the proceeds on more attractive value opportunities as Cisco’s growth has come in below what we had hoped for, and the company is increasingly looking at M&A to augment its growth rate.”

9. Meta Platforms, Inc. (NASDAQ:META)

Goldman Sachs’ Stake Value: $2,110,968,491

Number of Hedge Fund Holders: 220

Meta Platforms, Inc. (NASDAQ:META) is one of the top Goldman Sachs tech stocks. According to securities filings for the first quarter of 2023, Goldman Sachs owned approximately 10 million shares of Meta Platforms, Inc. (NASDAQ:META), valued at $2.11 billion and representing 0.45% of the total portfolio. On July 26, the company announced a Q2 GAAP EPS of $2.98 and a revenue of $32 billion, beating Wall Street estimates by $0.07 and $970 million, respectively.

According to Insider Monkey’s first quarter database, a total of 220 hedge funds were bullish on Meta Platforms, Inc. (NASDAQ:META). In contrast, 194 hedge funds were invested in the company during the previous quarter. Philippe Laffont’s Coatue Management held a significant stake in the company, with 8 million shares valued at $1.7 billion.

Weitz Partners III Opportunity Fund said this about Meta Platforms, Inc. (NASDAQ:META) in its second quarter 2023 investor letter:

“Meta Platforms, Inc. (NASDAQ:META) shares more than doubled this year (and tripled off their November 2021 low) as management’s austerity measures bolstered profitability, and operating results demonstrated that Meta’s advertising business is regaining momentum. We trimmed several of the year’s winners on strength, including Meta, Microsoft, Alphabet, CoStar Group, Inc. (CSGP), and CarMax.”

8. MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI)

Goldman Sachs’ Stake Value: $2,157,047,100

Number of Hedge Fund Holders: 13

MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) is a provider of semiconductor solutions worldwide. The company manufactures products that are used in wired and wireless systems, with applications in the telecommunication, industrial, and the defense sectors. At the conclusion of Q1 2023, Goldman Sachs owned 20.5 million shares of MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI), amounting to $2.16 billion and representing 0.46% of the total holdings.

On August 3, MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) reported financial results for its third fiscal quarter ended June 30, 2023. The company announced a non-GAAP EPS of $0.54, in-line with market consensus. Revenue for the period came in at $148.5 million, topping analysts’ estimates by $1.14 million.

According to Insider Monkey’s first quarter database, 13 hedge funds were bullish on MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI), as opposed to 16 hedge funds in the last quarter. D E Shaw was the largest investor in the company, with 550,618 shares worth $39 million.

Artisan Partners had this to say about MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) in its Q3 2022 investor letter:

“MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) designs and manufactures high performance silicon and compound semiconductor analog/mixed signal chips used in the aerospace and defense, industrial, telecommunication and data center end markets. The company is led by a relatively new management team taking steps to accelerate topline growth and expand margins. The leadership team’s strategy is to addresses smaller, long-duration product cycle markets in which it can provide a differentiated offering, especially in compound semis such as GaAs, Al-GaAs, InP and GaN-on-SiC, using its design expertise and its US-trusted foundry / Department of Defense approved status. Rolling out several new, higher margin products and expanding into adjacent end markets such as auto and consumer should drive a compelling profit cycle in the periods ahead.”

7. Splunk Inc. (NASDAQ:SPLK)

Goldman Sachs’ Stake Value: $2,677,404,332

Number of Hedge Fund Holders: 49

Splunk Inc. (NASDAQ:SPLK) is a provider of cloud services, software based solutions, and cybersecurity worldwide. On May 25, the company reported a Q1 non-GAAP EPS of $0.18 and a revenue of $752 million, beating market expectations by $0.30 and $24.81 million, respectively. At the end of Q1 2023, Goldman Sachs held 27.6 million shares of Splunk Inc. (NASDAQ:SPLK) worth $2.68 billion. It is one of the top Goldman Sachs tech stocks to watch.

According to Insider Monkey’s first quarter database, a total of 49 hedge funds were bullish on Splunk Inc. (NASDAQ:SPLK). During the preceding quarter, 52 hedge funds had invested in the company. Jeffrey Smith’s Starboard Value LP was the largest shareholder in the company, with 4.5 million shares worth $439.4 million.

Vulcan Value Partners stated this about Splunk Inc. (NASDAQ:SPLK) in its Q4 2022 investor letter:

“We exited our position in Splunk Inc. (NASDAQ:SPLK) during the quarter. A number of developments caused us to question whether Splunk’s competitive position was eroding. Splunk is a premium product, and less expensive alternatives have made progress increasing the quality of their offerings. Our research has confirmed Splunk is losing market share to these players, including Microsoft’s Sentinel. Sentinel has made a number of improvements over time and integrates with Microsoft’s other products. Notably, both of Splunk’s Co-Presidents left Splunk in 2022 to work for Microsoft. Splunk’s Chief Financial Officer left a few months later. Before the CFO left, Splunk lowered its annual recurring revenue guidance for the year. While the company attributed the change to the macro environment, we were unable to differentiate to what extent the slowdown was caused by the macro environment versus competitive factors. Based on our primary research and competitive concerns, we no longer had sufficient confidence in Splunk’s value stability. Splunk no longer qualifies for investment, and we exited the position.”

6. Visa Inc. (NYSE:V)

Goldman Sachs’ Stake Value: $3,533,157,774

Number of Hedge Fund Holders: 173

Visa Inc. (NYSE:V) is one of the market leaders in providing payment solutions across the globe. It allows for a seamless payment authorization, clearing, and settlement through its secure payment gateways. On July 25, Visa Inc. (NYSE:V) announced a quarterly dividend per share of $0.45, which is payable on September 1, for shareholders of record as of August 11. At the end of Q1 2023, Goldman Sachs held a position worth $3.53 billion in Visa Inc. (NYSE:V).

According to Insider Monkey’s first quarter database, a total of 173 hedge funds were bullish on Visa Inc. (NYSE:V), in contrast to 177 hedge funds in the last quarter. Chris Hohn’s TCI Fund Management held the largest position in the company, comprising 19.3 million shares worth $4.35 million.

Like Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL), Visa Inc. (NYSE:V) is one of the top tech picks of Goldman Sachs.

Manole Capital Management had this to say about Visa Inc. (NYSE:V) in its second quarter 2023 investor letter:

“We like to start out all of our discussions by telling investors who we are. We are FINTECH investors, and we define Fintech as “anything utilizing technology to improve an established process.” We realize that half of Fintech is financial, but we don’t invest in traditional, credit sensitive banks. Having managed money during the Financial Crisis, we learned firsthand how certain opaque and balance sheet intensive financials could go bankrupt or insolvent.

We prefer transaction-based businesses, generating recurring revenue, with sustainable margins, and significant cash flow. From our perspective, the perfect example of a FINTECH business is the secularly growing payments industry. Names like Visa Inc. (NYSE:V) or Mastercard, that generate revenue and profit per swipe or transaction, without the underlying credit sensitivity or risk associated with that underlying line of credit.”

Click to continue reading and see Goldman Sachs Tech Stocks: Top 5 Stock Picks.

AI Fire Sale: Insider Monkey’s #1 AI Stock Pick Is On A Steep Discount

Published on October 30, 2024 at by Inan Dogan, PhD

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A New Dawn is Coming to U.S. Stocks

Published on November 16, 2024 at by Insider Monkey Staff

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